iii. . B - the short-run Phillips curve upward iv. . E - disinflation v. . E - all of the above C. Please read the following "FYI" from our old textbook. Vi The Great Disinflation of the 1980s As we've mentioned several times, the United flation trends than the overall OPL By this meas- Our analysis of the Phillips curve tells States ended the 1970s with a high rate of in- Lore, Inflation fell from about 12%% at the end of us that a temporary rise in unemployment, flation, at least by its own peace time historical the 1970s to about 4% by the mid-19805. like that of the 1980s, is needed to break standards-13%% in 1980, Part of this inflation How was this disintation achieved? At the cycle of inflationary expectations. Once was the result of one time events, especially a great cost. Beginning In late 1979, the Federal expectations of Inflation are reduced, the world oil crisis. But expectations of future infla- Reserve imposed strongly contractionary economy can return to the natural rate of finn at 10% or more per year appeared to be monetary policies, which pushed the economy unemployment at a bower inflation rate. And firmly embedded in the economy. Into Its worst recession since the Great that's just what happened. By the mid-1980s, however, inflation was Depression. Panel (bj shows the Congressional At what cost? If you add up the output ruming at about 4%% per year. Panel jaj of the Buriget Office estimate of the U.S. output gap gapa over 1980-1987, you find that the figure shows the annual rate of change in the from 1879 to 1908: by 1982, actual output economy sacrificed approximately 18%% of an "core" consumer price index (CPI)-also called was 7% below potential output, corresponding average year's output over the period. If we the core inflation rate This Index, which ex- to an unemployment rate of more than 9 had to do the same thing today, that would dudes volatile energy and food prices, is widely Aggregate output didn't get back to potential mean giving up roughly $2.6 trilion worth of regarded as a better indicator of underlying in- output until 1987. goods and services. (#) The Core Inflation Rate in the United States (b) . . . but Only at the Expense of a Huge Came Down in the 1980s . . . Sacrifice of Output and High Unemployment. Core Output gap inflation percent of rate potential 14% output) 12 2%% 10 -2 -4 -6- 1987 1983 1985 1987 Year Year i. Please summarize the reading above in 4-5 sentences